Real Estate Watch: A reverse mortgage

Philip A Raices

The years are rolling by and you have been in your home for decades, kids are gone, grand kids are either near by or far away.  

So now what?  

You’re in fairly good health, except maybe you don’t hear as well, memory still intact, but forgetting things here and there; can’t run those marathons anymore.   

But your still free and able to roam and drive your 10-20 year old car (or brand new one!)  

However, one day soon, you might have to give up those keys (kids are mentioning, is it safe and how long will you be still driving?).  

You have a lot of decisions to make, so where do you start?  

Well, first off, if you’re desire is to stay, that’s great!  

Do you have enough money to keep going?  Do you need a part time job to pay your real estate taxes, daily expenses, food, insurance, etc.? 

Are the savings dwindling faster than you can replace them?  Okay, now you think, what are my choices?  Do I stay or do I go? 

I have a brain storm and suddenly it occurs to me that I had recently read something about reverse mortgages.  

So, I did some research and found out that  I can borrow the money I need and be able to stay in place and hopefully enjoy my life. 

Here are some pros in receiving a reverse mortgage:

1. Cash flow to stay in place

2. Be able to pay off existing mortgage (assuming there is enough equity in your home) and not have to make any more payments.(The loan will be due only when you move or pass)  

3. You have several choices:

A. Monthly installments to you by your lending institution, variable interested is applied or 

B. A line of credit, again variable interest charged or

C. A lump sum payment to you with a fixed rate of interest charged. (up to $625,000 can be borrowed, depending on several crucial factors, such as the age of the borrower and interest rate.

4.  Most reverse mortgages are home equity reverse mortgages, which are non-recourse loans, fully insured by the Federal Housing Administration that if the value of your home is ever less than the balance of your reverse mortgage, the loan will not be called, you will not be evicted from your home and FHA will cover the shortfall.

5.  Having a reverse mortgage can also aid in helping you defer collecting social security benefits, until age 70, which will enable you to collect your full benefit. (Collecting at 66 will give you only 80 percent of your benefit.  

Each year you defer receiving  your Social Security payment, you will gain  approximately additional 8 percent per year  more in your check.  

Depending on the interest rate of your reverse mortgage, there is a good possibility, that it will be less than 8 percent, so you will be a head of the game.  

However, if you have excellent genes and longevity in your family tree,  you might consider  the approximately 10 years it will take, (until 80), to recover the benefits that you would have received, if you started collecting at 66.  

Hopefully, for you millennials or generation Xers, something will exist that resembles social security, but don’t totally count on it and start saving in a: 

• 1. Traditional IRAs.

• 2. Roth IRAs.

• 3. SEP IRAs.

• 4. SIMPLE IRAs.) Qualified 

   Plans (including profit 

   sharing, and 401(k) plans)

• 6. 403(b) Accounts.

• 7. 529 Plans.

• 8. Education Savings 


•  But whatever you do start Today!  Right now!

Cons of getting a Reverse Mortgage:

1. The expense of this type of loan in many cases can be high and other costs associated with this type of borrowing can occur.  

They are added to the loan or paid monthly during the course of the time you have it.

2. Variable rates can go up in inflation kicks in, making the loan cost more at the time of the pay off.

3. Mortgage interest is not deductible, unless you are making payments each month or you pass and then when the loan is paid off by your heirs, then the interest is deductible up to the limit of $100,000 of principle (see links below for more information and ask your licensed & certified professional)

4. You will not be able to sell the home or give it to an heir without paying off the Reverse Mortgage or

5. One can take out a higher cost insurance policy, on the borrower for the loan amount and make the beneficiary a family member or the lending institution.

6. Future personal borrowing, applying for car loan or credit cards by the homeowner may be adversely affected.

7. Medicaid benefits could be seriously affected if you take a lump sum payment and do not spend it right away/see links below for more information)

However, it is extremely important to realize and understand that whatever money is borrowed, interest accrues from the day you start using it, until you or your heirs pay it back.

It is crucial and  critical that you consult an elder care attorney or a licensed & certified professional who  specializes in reverse mortgages, to discuss the pros and cons (and your children too).  

They will determine the most accurate analysis of your specific financial situation, before you make any rash or spur of the moment decisions to borrow any money.  

However, in the end you may come to the conclusion to put your home on the market to sell and either retire to a sunny location, live with the kids, assisted or independent living or a retirement facility.

The choice is yours! Call me if you have any?

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